IRS Extends Deadline for 401(k) Rollovers

Those who miss a 60-day deadline when transferring their individual retirement accounts or workplace retirement plans, like 401(k)s, will now get a second chance.

The Internal Revenue Service (IRS) announced that IRA owners and retirement plan participants who accidentally exceed a 60-day time limit when moving their accounts during a rollover can now receive a waiver of the deadline. Without the waivers, the amount in the retirement plan or IRA would not only be fully taxable at the time, but any account holders under the age of 59 ½ years of with owe an additional 10% penalty.

The rule change, which was announced in Revenue Procedure 2016-47, became effective immediately.

IRS Extends Deadline

To IRA experts, the change came as a surprise. Ed Slott, an IRA expert practicing in Rockville Centre, New York, sees it as a great move. In the past, people have lost retirement accounts because they were unaware of the 60-day limit, he says.

The new procedure applies to retirement account holders who gain possession of assets during a transfer, known as a rollover, typically involving moving assets from one institution to another.

To prevent abuses, the move is supposed to be completed within 60 days. When taxpayers transfer accounts directly between institutions without taking possession of the assets, the deadline doesn’t apply.

The problems posed by the 60-day limit for both the IRS and taxpayers are nothing new. Before 2002, the IRS could not accept excuses for a missed deadline. Since then, people with valid excuses, including post office delay, have had to pay the agency up to $10,000 (on top of professional fees) and wait extended periods of time before obtaining forgiveness.

Who Qualifies for a Waiver?

However, under the new procedure, taxpayers ‘self-certify’ that they deserve a waiver if one (or more) of 11 circumstances apply to them. These circumstances include a death or serious illness in the family, severe damage to a home, restrictions imposed by a foreign country, and an uncashed check for IRA assets.

Taxpayers who are affected fill out a form signaling they qualify for the waiver, though the agency can revoke it if it finds the taxpayer was untruthful. If the missed 60-day deadline is noticed during an audit, the agency can also grant a waiver.

Remember: for the waiver to be valid, the rollover must also be valid. As an example, savers are allowed only one IRA-to-IRA rollover every year, so if the taxpayer makes a second rollover within the same 12-month period, the new relief isn’t available.

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